Thursday 9 January 2014 10.55 EST
First published on Thursday 9 January 2014 10.55 EST

Turkey's strong economic growth over the past decade, bringing relative prosperity to previously neglected parts of the country, has underpinned the popularity of the prime minister, Recep Tayyip Erdoğan, and his mildly Islamist Justice and Development party (AKP).

But the danger of a worsening economy is compounding the instability, essentially political, that has seized the country in the past year, generating the biggest crisis of Erdoğan's 11 years in power – just before local and national elections this year and next.

The crisis threatens the economic gains made by the Erdoğan government: since his AK party came to power in 2002 Turkey's staggering annual inflation rate of up to 100% has been brought down to single digits, while GDP has risen by more than 45% in real terms.

The tamed inflation and the accompanying economic stability brought the long neglected country to the attention of international investors and global finance, winning Turkey its first investment-grade credit ratings in two decades.

Backed by conservative and highly entrepreneurial businessmen sometimes called the "Anatolian Tigers", the AKP won three elections on a ticket of continuous growth and a promise of increasing prosperity for Turks, as well as an appetite for an open market economy and globalised business, leading to a decade of growth with annual rates of more than 4%.

But Turkey's political stability, until recently the country's most prized asset, is in peril after the eruption of a corruption scandal that led to the resignation of four cabinet ministers and, some say, may unseat the prime minister. It followed a summer of street unrest that also shook Erdoğan's international credibility.

"Political stability was the cornerstone of the government's political and economic success," said Asaf Savas Akat, an economist and professor at Bilgi University in Istanbul. "This crisis might shake the confidence of economic actors and lead to considerably slower growth in an already more difficult economic environment."

The allegations of corruption, bribery and tender-rigging implicating members of the AKP call into question the party's claims to "purity" – the translation of the Turkish word "ak" – and government promises to end illicit practices and corruption. While the investigations triggered a record low of the Turkish lira and a huge sell-off of Turkish stocks, Akat warned against alarmism: "The exchange rate does not reflect economic policies per se, but rather psychological trends," he said. "It tells us more about how people read the crisis."

He underlined that it was too early to make predictions about the country's long-term economic outlook. "There has always been political noise during the past decade, but the fundamentals have essentially stayed the same. But the crisis we are now witnessing is entirely unprecedented and we don't know how it will be resolved.

"The number of possible scenarios is infinite and as long as we don't know in which direction this is going, we cannot say what the medium- and long-term impact on the Turkish economy will be."

In his new year's speech, Erdoğan renewed his goal to bring the country into the top 10 world economies by 2023, the year of the republic's centennial.

From the point of view of the ruling party, the timing of the crisis could not be worse: local elections are scheduled for March followed by the country's first direct presidential election in August and general elections next year. Turkey is in the most volatile and unpredictable political period since Erdoğan came to power. But his prospects of surviving the turmoil may yet rest on public perceptions of economic success and transparency.

Seyfettin Gürsel, head of BETAM at Bahçesehir University, said that electoral support for the AKP might decline in the light of the corruption scandal, but the outcome of elections was difficult to predict.

"If the AKP's vote in March falls below 43% [from 50% in general elections in 2011], it will be very difficult for Erdoğan to secure the majority necessary for his presidential election and the constitutional changes that would install a presidential government in Turkey."